
From the U.S. Code Online via GPO Access
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[Laws in effect as of January 2, 2001]
[Document not affected by Public Laws enacted between
  January 2, 2001 and January 28, 2002]
[CITE: 15USC77k]

 
                      TITLE 15--COMMERCE AND TRADE
 
               CHAPTER 2A--SECURITIES AND TRUST INDENTURES
 
                    SUBCHAPTER I--DOMESTIC SECURITIES
 
Sec. 77k. Civil liabilities on account of false registration 
        statement
        

(a) Persons possessing cause of action; persons liable

    In case any part of the registration statement, when such part 
became effective, contained an untrue statement of a material fact or 
omitted to state a material fact required to be stated therein or 
necessary to make the statements therein not misleading, any person 
acquiring such security (unless it is proved that at the time of such 
acquisition he knew of such untruth or omission) may, either at law or 
in equity, in any court of competent jurisdiction, sue--
        (1) every person who signed the registration statement;
        (2) every person who was a director of (or person performing 
    similar functions) or partner in the issuer at the time of the 
    filing of the part of the registration statement with respect to 
    which his liability is asserted;
        (3) every person who, with his consent, is named in the 
    registration statement as being or about to become a director, 
    person performing similar functions, or partner;
        (4) every accountant, engineer, or appraiser, or any person 
    whose profession gives authority to a statement made by him, who has 
    with his consent been named as having prepared or certified any part 
    of the registration statement, or as having prepared or certified 
    any report or valuation which is used in connection with the 
    registration statement, with respect to the statement in such 
    registration statement, report, or valuation, which purports to have 
    been prepared or certified by him;
        (5) every underwriter with respect to such security.

    If such person acquired the security after the issuer has made 
generally available to its security holders an earning statement 
covering a period of at least twelve months beginning after the 
effective date of the registration statement, then the right of recovery 
under this subsection shall be conditioned on proof that such person 
acquired the security relying upon such untrue statement in the 
registration statement or relying upon the registration statement and 
not knowing of such omission, but such reliance may be established 
without proof of the reading of the registration statement by such 
person.

(b) Persons exempt from liability upon proof of issues

    Notwithstanding the provisions of subsection (a) of this section no 
person, other than the issuer, shall be liable as provided therein who 
shall sustain the burden of proof--
        (1) that before the effective date of the part of the 
    registration statement with respect to which his liability is 
    asserted (A) he had resigned from or had taken such steps as are 
    permitted by law to resign from, or ceased or refused to act in, 
    every office, capacity, or relationship in which he was described in 
    the registration statement as acting or agreeing to act, and (B) he 
    had advised the Commission and the issuer in writing that he had 
    taken such action and that he would not be responsible for such part 
    of the registration statement; or
        (2) that if such part of the registration statement became 
    effective without his knowledge, upon becoming aware of such fact he 
    forthwith acted and advised the Commission, in accordance with 
    paragraph (1) of this subsection, and, in addition, gave reasonable 
    public notice that such part of the registration statement had 
    become effective without his knowledge; or
        (3) that (A) as regards any part of the registration statement 
    not purporting to be made on the authority of an expert, and not 
    purporting to be a copy of or extract from a report or valuation of 
    an expert, and not purporting to be made on the authority of a 
    public official document or statement, he had, after reasonable 
    investigation, reasonable ground to believe and did believe, at the 
    time such part of the registration statement became effective, that 
    the statements therein were true and that there was no omission to 
    state a material fact required to be stated therein or necessary to 
    make the statements therein not misleading; and (B) as regards any 
    part of the registration statement purporting to be made upon his 
    authority as an expert or purporting to be a copy of or extract from 
    a report or valuation of himself as an expert, (i) he had, after 
    reasonable investigation, reasonable ground to believe and did 
    believe, at the time such part of the registration statement became 
    effective, that the statements therein were true and that there was 
    no omission to state a material fact required to be stated therein 
    or necessary to make the statements therein not misleading, or (ii) 
    such part of the registration statement did not fairly represent his 
    statement as an expert or was not a fair copy of or extract from his 
    report or valuation as an expert; and (C) as regards any part of the 
    registration statement purporting to be made on the authority of an 
    expert (other than himself) or purporting to be a copy of or extract 
    from a report or valuation of an expert (other than himself), he had 
    no reasonable ground to believe and did not believe, at the time 
    such part of the registration statement became effective, that the 
    statements therein were untrue or that there was an omission to 
    state a material fact required to be stated therein or necessary to 
    make the statements therein not misleading, or that such part of the 
    registration statement did not fairly represent the statement of the 
    expert or was not a fair copy of or extract from the report or 
    valuation of the expert; and (D) as regards any part of the 
    registration statement purporting to be a statement made by an 
    official person or purporting to be a copy of or extract from a 
    public official document, he had no reasonable ground to believe and 
    did not believe, at the time such part of the registration statement 
    became effective, that the statements therein were untrue, or that 
    there was an omission to state a material fact required to be stated 
    therein or necessary to make the statements therein not misleading, 
    or that such part of the registration statement did not fairly 
    represent the statement made by the official person or was not a 
    fair copy of or extract from the public official document.

(c) Standard of reasonableness

    In determining, for the purpose of paragraph (3) of subsection (b) 
of this section, what constitutes reasonable investigation and 
reasonable ground for belief, the standard of reasonableness shall be 
that required of a prudent man in the management of his own property.

(d) Effective date of registration statement with regard to underwriters

    If any person becomes an underwriter with respect to the security 
after the part of the registration statement with respect to which his 
liability is asserted has become effective, then for the purposes of 
paragraph (3) of subsection (b) of this section such part of the 
registration statement shall be considered as having become effective 
with respect to such person as of the time when he became an 
underwriter.

(e) Measure of damages; undertaking for payment of costs

    The suit authorized under subsection (a) of this section may be to 
recover such damages as shall represent the difference between the 
amount paid for the security (not exceeding the price at which the 
security was offered to the public) and (1) the value thereof as of the 
time such suit was brought, or (2) the price at which such security 
shall have been disposed of in the market before suit, or (3) the price 
at which such security shall have been disposed of after suit but before 
judgment if such damages shall be less than the damages representing the 
difference between the amount paid for the security (not exceeding the 
price at which the security was offered to the public) and the value 
thereof as of the time such suit was brought: Provided, That if the 
defendant proves that any portion or all of such damages represents 
other than the depreciation in value of such security resulting from 
such part of the registration statement, with respect to which his 
liability is asserted, not being true or omitting to state a material 
fact required to be stated therein or necessary to make the statements 
therein not misleading, such portion of or all such damages shall not be 
recoverable. In no event shall any underwriter (unless such underwriter 
shall have knowingly received from the issuer for acting as an 
underwriter some benefit, directly or indirectly, in which all other 
underwriters similarly situated did not share in proportion to their 
respective interests in the underwriting) be liable in any suit or as a 
consequence of suits authorized under subsection (a) of this section for 
damages in excess of the total price at which the securities 
underwritten by him and distributed to the public were offered to the 
public. In any suit under this or any other section of this subchapter 
the court may, in its discretion, require an undertaking for the payment 
of the costs of such suit, including reasonable attorney's fees, and if 
judgment shall be rendered against a party litigant, upon the motion of 
the other party litigant, such costs may be assessed in favor of such 
party litigant (whether or not such undertaking has been required) if 
the court believes the suit or the defense to have been without merit, 
in an amount sufficient to reimburse him for the reasonable expenses 
incurred by him, in connection with such suit, such costs to be taxed in 
the manner usually provided for taxing of costs in the court in which 
the suit was heard.

(f) Joint and several liability; liability of outside director

    (1) Except as provided in paragraph (2), all or any one or more of 
the persons specified in subsection (a) of this section shall be jointly 
and severally liable, and every person who becomes liable to make any 
payment under this section may recover contribution as in cases of 
contract from any person who, if sued separately, would have been liable 
to make the same payment, unless the person who has become liable was, 
and the other was not, guilty of fraudulent misrepresentation.
    (2)(A) The liability of an outside director under subsection (e) of 
this section shall be determined in accordance with section 78u-4(f) of 
this title.
    (B) For purposes of this paragraph, the term ``outside director'' 
shall have the meaning given such term by rule or regulation of the 
Commission.

(g) Offering price to public as maximum amount recoverable

    In no case shall the amount recoverable under this section exceed 
the price at which the security was offered to the public.

(May 27, 1933, ch. 38, title I, Sec. 11, 48 Stat. 82; June 6, 1934, ch. 
404, title II, Sec. 206, 48 Stat. 907; Pub. L. 104-67, title II, 
Sec. 201(b), Dec. 22, 1995, 109 Stat. 762; Pub. L. 105-353, title III, 
Sec. 301(a)(2), Nov. 3, 1998, 112 Stat. 3235.)


                               Amendments

    1998--Subsec. (f)(2)(A). Pub. L. 105-353 made technical amendment to 
reference in original act which appears in text as reference to section 
78u-4(f) of this title.
    1995--Subsec. (f). Pub. L. 104-67 designated existing provisions as 
par. (1), substituted ``Except as provided in paragraph (2), all'' for 
``All'', and added par. (2).
    1934--Subsec. (a). Act June 6, 1934, inserted last par.
    Subsecs. (b)(3), (c) to (e). Act June 6, 1934, amended subsecs. 
(b)(3) and (c) to (e).


                    Effective Date of 1995 Amendment

    Section 202 of title II of Pub. L. 104-67 provided that: ``The 
amendments made by this title [amending this section and section 78u-4 
of this title] shall not affect or apply to any private action arising 
under the securities laws commenced before and pending on the date of 
enactment of this Act [Dec. 22, 1995].''


                     Construction of 1995 Amendment

    Nothing in amendment by Pub. L. 104-67 to be deemed to create or 
ratify any implied right of action, or to prevent Commission, by rule or 
regulation, from restricting or otherwise regulating private actions 
under Securities Exchange Act of 1934 (15 U.S.C. 78a et seq.), see 
section 203 of Pub. L. 104-67, set out as a Construction note under 
section 78j-1 of this title.

                          Transfer of Functions

    For transfer of functions of Securities and Exchange Commission, 
with certain exceptions, to Chairman of such Commission, see Reorg. Plan 
No. 10 of 1950, Secs. 1, 2, eff. May 24, 1950, 15 F.R. 3175, 64 Stat. 
1265, set out under section 78d of this title.

                  Section Referred to in Other Sections

    This section is referred to in sections 77j, 77m, 77o, 77eee, 78u-4, 
80a-24 of this title.
